Some traders are apparently afraid that blue chips such as Bank of America and Procter & Gamble will run away from them.
optionMONSTER's Heat Seeker program detected unusual activity in both large-cap stocks yesterday, raising speculation among traders in our premium chat room that these are "Hail Mary trades" by money managers who have missed out on the recent rallies: cheap long-shot bets that will help them save face if the market continues to move higher.
In BAC, activity focused on the February 12.50 calls, which saw more than 31,500 contracts trade in volume well above the strike's previous open interest of 4,056, indicating new activity. They initially fetched $0.01 but then ratcheted up to $0.08 as the buying persisted and the shares climbed.
The bulls turned to PG next, snapping up more than 16,000 March 80 calls for $0.08. This was clearly new positioning as well, as that strike's open interest was just 1,139 contracts at the start of the session.
Long calls such as these lock in the price where investors can buy shares. They can generate huge leverage if the stocks move in the right direction but will expire worthless if shares decline or don't climb far enough and fast enough. (See our Education section)
BAC jumped 3.25 percent to $12.24, at one point hitting a 21-month high of $12.34. Its February 12.50 calls expire this Friday, so those buyers are looking for a quick move to the upside.
PG rose 0.22 percent to $75.98. Its March 80 calls have 4-1/2 weeks before they run out of time.
(A version of this post appeared on InsideOptions Pro yesterday.)
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